Economy in China Benefits From Stronger U.S. Demand

Exports Rise 7.2% in August From a Year Earlier

BEIJING—China's economy showed fresh signs of resilience in August, with trade data pointing to a sustained strengthening in global demand for goods from the country.

ENLARGE

Exports continued to gather steam, rising 7.2% in August from a year earlier, according to data released on Sunday by the General Administration of Customs. This was up from a 5.1% rise in July and a contraction of 3.1% in June. Imports rose 7% from a year earlier in August, down from 10.9% in July.

The overall picture was of a Chinese economy benefiting from progressive strengthening of demand in the U.S. and other important export markets. China is also continuing to stock up on raw materials for its industrial sector.

Meanwhile, data early Monday showed inflation in August remained subdued, with the consumer-price index edging down to 2.6% year-on-year, from 2.7% in July.

August's trade numbers are the latest in a series of positive data releases, after overseas sales and factory output in July showed signs of improvement.

There are still some questions surrounding the current upswing's sustainability. Rising wages and a stronger currency dent the competitiveness of China's exports. Beijing's recent moves to slow lending growth—after years of credit-fueled economic expansion—could curtail investment and imports.

ENLARGE

Laborers work at a port in Lianyungang, in China's Jiangsu province, on Saturday. China's exports rose 7.2% in August from a year earlier.
Reuters

Still, two months of stronger data has increased optimism that the government will be able to hit its full-year target for gross domestic product growth of 7.5%. It also reduces the chances that leaders will introduce a major new stimulus policy.

Economists have responded to the signs of strengthening by edging up their growth forecasts.
J.P. Morgan
now expects 7.6% year-to-year growth in the third quarter, up from a previous forecast of 7.4%, which points to an acceleration from 7.5% growth in the second quarter.

China's trade surplus widened in August, with the difference between exports and imports growing to $28.5 billion, up from $17.8 billion in July, marking its highest level since January.

Accelerating exports and a widening trade surplus mean renewed pressure for China's currency to strengthen. "Appreciation pressure on the yuan is likely to continue in the foreseeable future," said
Liu Ligang,
China economist at ANZ.

The yuan has gained 1.8% against the dollar so far this year. That is in contrast with other Asian currencies, many of which have lost more than 10% against the U.S. currency over the same period.

The recovery in China's overseas sales has been underpinned by stronger demand in the West and outperformance in exports to some Asian neighbors.

Shipments to the U.S. rose 6.1% on-year in August, up from 5.3% in July, which marked an improvement from shrinking sales earlier in the year.

Sales to countries in the Association of Southeast Asian Nations—a 10-nation grouping that includes Indonesia, Malaysia, Thailand and Singapore—rose 30.8%.

"External demand is better than expected," said
Ma Xiaoping,
an economist who covers China at
HSBC
.
"Over the coming months we should see a stronger upturn in exports. The U.S. data—like employment and retail sales—are improving. The fundamentals there are getting a bit better," she said.

An earlier period of export strength in the first months of 2013 sparked skepticism among some economists.

The economists, citing a discrepancy in export and import data between China and Hong Kong, suggested Beijing's official numbers overstated the strength of overseas sales.

Some Chinese factories allegedly embellished export numbers to bypass controls on capital inflows, allowing them to bring funds into the country, people familiar with the reporting practices said.

It was unrealistically high sales to Hong Kong—up by close to 100% on-year in March—that rang alarm bells. Exports to Hong Kong were up just 6.4% in August.

This time around, "the improvement reflects reality rather than data issues," said
Louis Kuijs,
China economist at RBS.

In China's domestic economy, stronger infrastructure and real-estate investment, as well as vibrant auto sales, sustained appetite for raw-material imports.

Purchases of iron ore edged down from July's record high, but still registered a 10.5% year-to-year increase. Copper and crude-oil imports followed a similar pattern.

Some economists saw the fall in import growth as a warning sign for the strength of China's domestic demand. "I am not that optimistic," said HSBC's Ms. Ma. "Some said previously that domestic demand had strongly rebounded, but from today's data I can only say it's not as weak as before."

China's export sector continues to face structural headwinds from rising costs for wages and a stronger yuan, as well as growing competition from low-cost rivals like Vietnam and Bangladesh.

These hurdles make it unlikely that growth can return to the stellar heights seen before the financial crisis, and raise questions about how long the current modest recovery can be sustained. A monthly survey of factory purchasing managers by HSBC and Markit found new export orders declined for the fifth consecutive month in August.

Some analysts also doubted how long the increase in investment that has been underpinning commodity demand could be sustained. "The rate of new project approvals in infrastructure has slowed and as the current set of projects goes through the system, the pipeline is looking barer," said Barclays Research analyst
Ephrem Ravi.

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